Considering loan against LIC policy? Here is what you should know about it!

Imagine a situation where you face a financial emergency, and your savings are not enough to cover the cost. What would you do? You will think about getting a loan from your relatives and friends. However, if the amount is larger and you know you won’t get the influx of money soon, they either might say no or can partially help you. The next option is to apply for a personal loan on Adhaar card, which you can easily get through by submitting income proof, and other essential documents. If the amount is not that big, you can even think about getting it through your credit card as well. But if you have a LIC policy, then you can think about getting a loan against LIC policy, as many such life insurance policies allow you to take a loan against it. Let’s get into and discuss what you should know before proceeding with the loan against LIC policy. 

How does this work?

The loan is available against the surrender value of the plan, and just like a personal loan, it doesn’t come with a restricted end usage; thus, you can use it for any of your personal use. You can either apply for a loan against your LIC policy through the insurance company you have taken the policy from or keep it as collateral with the bank. If in case you choose the latter option, your policy will be pledged as collateral, and the required loan amount will be disbursed to you in your account. 

What to know before availing loan against LIC policy?

Though in every case loan against LIC policy is known to have major benefits over credit cards or even bank loans which also disburses loans on Adhaar Card, income proof, credit score, etc. But, in the end, it is still a loan and comes with certain liabilities if the amount is not paid in full. Hence, here is a list of things you need to keep in mind before you decide to take a loan on adhaar card using your LIC policy. 

Disburses loans with a bad credit score as well: Unlike other types of loans where credit score takes the front seat, a loan against LIC policy doesn’t require you to have a good credit score. The bank doesn’t check your credit score before disbursing the loan amount to you, and neither the insurance company will do the same. It is that simple if you have a cash value in your life insurance policy, you can take a loan against it. However, keep this point in your mind that the death benefit will reduce if the loan is still pending at the time of claim. 

Comes with a nominal interest rate: One of the best things about taking a loan against LIC policy is the minimum interest rate one would be required to pay. The interest rate on the LIC policy is not fixed and generally changes by the LIC from time to time. The interest would have to be paid half-yearly, and the maximum loan tenure available is six months. Even if you repay the loan within six months of the loan, the insurance company is liable to charge you interest for six months. It is also important to repay the loan within the duration of the policy. In case the loan is not repaid and the policy matures, the outstanding loan amount will be deducted from the maturity benefit.

One can borrow any amount mentioned under the total amount of cash value of your policy, and the same will be disbursed to you with a minimum interest rate. However, it comes with a risk. Your loan may lapse if the loan amount and interest exceed the value of your policy. Or if in case of demise of the insured, the death benefit would be paid after deducting the loan amount. 

Cannot borrow in the initial period of policy: As mentioned above, one can take a loan on adhaar card against your LIC policy, provided it is within the cash value given in the policy. Due to this, it doesn’t make sense to borrow in the early years of purchasing a policy as there will be a little value to you. The insurer calculates the loan on the surrender value of the policy. However, the loan available to you would be 90% of the policy’s surrender value; the life insurance policy must build in value before one can borrow against it. Many people don’t know this, but a loan against LIC is available after the plan completes a specified tenure. The tenure can be one to three years, depending on the premium mode. The maximum loan against LIC policy available to one also depends on the terms prevailing at that time. 

A loan on adhaar card against LIC seems like a good way to avail funds from your life insurance policy in case you are facing a financial crunch and do not have many options left. One can easily get the loan based on the surrender value of the policy. The repayment process is also flexible and comes with a nominal interest rate. When you take a loan on adhaar card against LIC policy, your policy cash value becomes the collateral for your loan. Taking these factors into consideration, a loan against LIC policy is an attractive option to fund emergency needs. Just remember that if you are not able to pay your loan and interest rate on time, you will be attracting serious trouble. Thus, you need to be double sure before taking a loan against your life insurance policy. This kind of loan is ideal for those who don’t have enough funds to pay for the personal loan EMIs as it comes with a higher interest rate than your LIC policy or doesn’t want to choose costly personal loans and credit card balance.